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Arctic Opening: Opportunity and Risk in the High North (report)

From The Guardian
"Lloyd's of London, the world's biggest insurance market, has become the first major business organisation to raise its voice about huge potential environmental damage from oil drilling in the Arctic.

The City institution estimates that $100bn (£63bn) of new investment is heading for the far north over the next decade, but believes cleaning up any oil spill in the Arctic, particularly in ice-covered areas, would present "multiple obstacles, which together constitute a unique and hard-to-manage risk".

Richard Ward, Lloyd's chief executive, urged companies not to "rush in [but instead to] step back and think carefully about the consequences of that action" before research was carried out and the right safety measures put in place..."

Report excerpts from the Chatham House website

From the Foreward (by Richard Ward, CEO of Lloyd's)
Those monitoring the effects of climate change agree that the pace of environmental transformation currently taking place in the Arctic is unprecedented. As this report shows, such changes provide opportunities for business in areas as diverse as energy extraction, shipping and tourism. But these opportunities will only be fully realised if the businesses involved are able to manage the substantial, and unique, risks which exist in the region. There will be winners and losers as the impacts of climate change continue to shape the Arctic future.

One thing that stands out most clearly from this report is the significant level of uncertainty about the Arctic‘s future, both environmentally and economically. Some of the technologies that will help to shape that future, such as those involved in deep water drilling and ice management are already tried, while others are still in their infancy or yet to be developed.

Risk management clearly has a critical role to play in helping businesses, governments and communities manage these uncertainties and minimise risks. However, to do so effectively requires the most up to date information to analyse and control risks; there is a clear need for sustained investment in Arctic research.

The ‘known-unknowns’ of the High North present particular challenges for those involved in exploration and extraction. The Arctic is a frontier unlike any other, and the industries and companies it attracts will need to develop and implement robust risk management systems to meet these challenges and manage both their carbon and environmental footprint on this pristine setting.

The environmental implications of further development of the region are significant, reaching far beyond the immediate Arctic region itself. How, for example, will developments in hydrocarbon exploration and extraction align with commitments to reduce global greenhouse gas emissions and the need to increase our use of renewable energy?

As recent events have shown, deep water exploration can have devastating consequences on local environments.

The ability to contain and manage the fall-out from disasters is affected by issues including access, support infrastructure and cross-border political and legal requirements. Given that several states have jurisdiction over different parts of the Arctic, it will become even more important to develop and agree clear governance frameworks to allow effective and co-ordinated responses to disasters.

This report explores how fluctuations in energy prices have driven, and will continue to drive, the pace of exploration in the Arctic and the importance of both political stability and public support in attracting future investment.

The businesses which will succeed will be those which take their responsibilities to the region’s communities and environment seriously, working with other stakeholders to manage the wide range of Arctic risks and ensuring that future development is sustainable.

From the Executive Summary

  • Rapid and disruptive change in the Arctic environment presents uneven prospects for investment and economic development. All across the Arctic, changes in climate will create new vulnerabilities for infrastructure and present new design challenges.
     
  • The Arctic is likely to attract substantial investment over the coming decade, potentially reaching $100bn or more. However, given the high risk/potentially high reward nature of Arctic investment, this figure could be significantly higher or lower.
     
  • Uncertainties and knowledge gaps exist around the nature of environmental change, the geological potential of the Arctic and environmental baselines, as well as seabed mapping, and how to deal with the risks of significant Arctic industrial activity. 
     
  • Arctic conditions will remain challenging and often unpredictable. Many of the operational risks to Arctic economic development – particularly oil and gas developments, and shipping – amplify one another. At the same time, the resilience of the Arctic’s ecosystems to withstand risk events is weak, and political and corporate sensitivity to a disaster is high.
     
  • The environmental consequences of disasters in the Arctic are likely to be worse than in other regions. 
     
  • Given the Arctic's iconic status and sensitive environment, Arctic development is often politically contentious, with sometimes opposing interests and perspectives between local, national and international levels. Political support for development will continue to represent an uncertainty for businesses seeking to invest in Arctic projects.
     
  • The challenges of Arctic development demand coordinated responses where viable, common standards where possible, transparency and best practice across the north. These frameworks need to be in place to enable sustainable development and uphold the public interest.
     
  • Companies operating in the Arctic require robust risk management frameworks and processes that adopt best practice and contain worst case scenarios, crisis response plans and full-scale exercises. 

Interview

60 Seconds with Charles Emmerson, April 2012

Download full report

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